## Using the TI-83 Calculator Financial Functions

### Calculator examples

prepared by Pamela Peterson Drake

Examples

1. ### Calculating a future value

2. Problem:

Suppose you invest \$10,000 today in an account that pays 5% interest, compounded annually, how much will you have in the account at the end of 6 years?

Solution: \$13,401

 Next to ... Strike ... 2nd FINANCE ENTER N= 6 ↓ I%= 5 the interest rate is specified as a whole number ↓ PV= (-)10000 ↓ PMT= 0 ↓ FV ALPHA SOLVE this displays the FV next to “FV”

Notes:

• P/Y=1.00 and C/Y=1.00
• PMT: END

3. ### Calculating the present value of an annuity

4. Problem:

Suppose you are promised annual payments of \$1,500 each year for the next five years, with the first cash flow occurring in one year. If the interest rate is 4%, what is this stream of cash flows worth today?

Solution: \$6,678

 Next to ... Strike ... 2nd FINANCE ENTER ↓ N= 5 ↓ I%= 4 The interest rate is specified as a whole number ↓ ↓ PMT= 1500 ↑ PV= ALPHA SOLVE This displays the PV next to “PV=”

Notes:

• P/Y=1.00 and C/Y=1.00
• PMT: END

5. ### Calculating the value of a bond

6. Problem:

Calculate the value of a bond with a maturity value of \$1,000, a 5% coupon (paid semi-annually), five years remaining to maturity, and is priced to yield 8%.

Solution: \$878.34

Note:
FV = 1,000 (lump-sum at maturity)
CF = \$25 (one half of 5% of \$1,000)
N = 10 (10 six-month periods remaining)
i = 4% (six-month basis, 8%/2)

 Next to ... Strike ... 2nd FINANCE ↓ 1:TVM Solver… ENTER N= 10 ↓ I%= 4 The interest rate is specified as a whole number ↓ ↓ PMT= 25 Use the arrows to go to “PMT=” ↓ FV= 1000 ↑ ↑ Use the arrows to go to “PV=” PV= ALPHA SOLVE This results in the PV displayed as a negative number

Notes:

• P/Y=1.00 and C/Y=1.00
• PMT: END

7. ### Valuing a series of uneven cash flows

8. Problem:

Consider the following cash flows,

CF0 = -\$10,000
CF1 = +\$5,000
CF2 = \$0
CF3 = +\$2,000
CF4 = +\$5,000

1. What is the internal rate of return for this set of cash flows?
2. If the discount rate is 5%, what is the net present value corresponding to these cash flows?

Solution:

• IRR = 7.5224%
• NPV = +\$603.09

 Next to ... Strike ... 2nd { This begins the list 5000 , This is the first entry in the list 0 , This is the second entry in the list 2000 , This is the third entry in the list 5000 , This is the fourth entry in the list } This ends the list STOè This stores the list 2nd L1 This names the list “L1” ENTER This results in a display of the items in the list 2nd FINANCE ↓ Repeat for a total of seven times until you reach irr( 7:irr( ENTER (-)10000 This inputs the first entry, cash flow at time 0 (the present) , 2nd L1 Uses the same list (L1) as used for IRR ) ALPHA SOLVE This results in the IRR displayed on the screen 2nd FINANCE ↓ Repeat for a total of six times until you reach npv( 8:npv( ENTER 5 , This inputs the first entry in the NPV function, which is the interest rate specified as a whole number (that is, 5% is input as 5). (-)10000 , This inputs the second entry in the NPV function 2nd L1 This inputs the third entry in the NPV function ) ALPHA SOLVE This results in the NPV displayed on the screen

Note: once you enter the list and store it, you can use it for both the NPV and the IRR calculations.

9. ### Calculating the yield to maturity on a bond

10. Problem:

Calculate the yield to maturity of a bond with a maturity value of \$1,000, a 5% coupon (paid semi-annually), ten years remaining to maturity, and is priced \$857.

Solution: 7.01%

Note:

FV = \$1,000 (lump-sum at maturity)
CF = \$25 (one half of 5% of \$1,000)
N = 20 (20 six-month periods remaining)
PV = \$857

 Next to ... Strike ... 2nd FINANCE ENTER N= 20 ↓ ↓ PV= (-)857 ↓ PMT= 25 ↓ FV= 1000 ↑ ↑ ↑ I%= ALPHA SOLVE This produces the semi-annual rate;take this value and multiply it by 2